168: The impact of the Iranian conflict on the economy of Armenia

The breath of the Iranian conflict is gradually felt on the economy of Armenia. Economic activity is weakening. Even before the start of the conflict, the activity started to weaken, but after the conflict, the pace of weakening accelerated.

In March, compared to the previous month, the rate of economic activity slowed down by 0.6 percent, making 6.6 percent. Before that, it exceeded 7 percent, and in January it even reached 7.6 percent.

According to the data of the quarter, the economic activity dropped to 7.1 percent.

The growth rate has fallen significantly, especially in industry. In the first 2 months of the beginning of the year, there was an impression that a period of “unprecedented growth” had begun in the industry, in February the growth reached almost 24 percent. But it turned out that it is also deceptive. In March, the growth of the industry compared to the previous year dropped to 7 percent, and compared to the previous month, even a decline was registered.

It will be possible to say at the expense of which sectors in particular this sharp shift took place after the openings regarding the economic indicators are published.

Before that, it can be assumed that it was primarily due to the reduction of re-exports of some products carried out under the name of the mining industry, as well as Armenian production.

According to the data of the quarter, especially due to the high growth of the previous period, a 13.4 percent growth was recorded in the industry. It seems that it is not a bad indicator. But, when we look back and see that this happened after the 18.5 percent decline in the same period last year, the picture becomes complete.

After such sharp declines, it is not heroic to register such increases, when even the lost of the previous year could not be restored.

The state of agriculture is especially sad. Last year, when after years of decline, some increases in agriculture were recorded, they were around the world, they made a world-class noise. They praised that the programs implemented in agriculture have begun to bear fruit. Now we see the results of those programs.

Agriculture is in recession again. In the first quarter of this year, the production of agricultural products decreased by 5.2 percent.

We can only guess where the development programs implemented in agriculture have gone. At the expense of the budget, they finance various projects amounting to billions, provide subsidies, repay the interest on loans at the expense of the budget, and the results are like this. This situation proves once again that the programs implemented in agriculture are not effective, money is spent, but the result is not visible.

One year, agriculture grew a little, this year it has fallen again.

After some growth registered in February, especially as a result of the activation of the export of mineral products, foreign trade was again negative in March. Both export and import volumes have decreased. They decreased both compared to the previous year and compared to the previous month. Compared to the previous year, the drop in exports reaches almost 13 percent. Import also decreased by 3.2 percent.

These decreases occurred after the previous year’s abdication. In March of the previous year, the decline of exports exceeded 65 percent, and that of imports exceeded 51 percent.

After such sharp declines, both export and import volumes continued to decrease in March of this year.

The growth of domestic trade turnover has slowed down significantly. According to the data of the quarter, it was barely 2.1 percent, and in March it was almost zero, it increased by only 0.2 percent.

The turnover of domestic trade, particularly retail trade, has a direct relationship with citizens’ consumer demand and solvency. These small increases show that there is almost no progress in terms of the solvent demand of the citizens. And it is not by chance, if we take into account that the rates of inflation, especially food inflation, have increased significantly recently. Food inflation reached almost 8 percent in March, and food is the main commodity group that finds a place in the consumer demand of most citizens.

Like the previous few years, the main hope of Armenia’s economy and economic growth this year is construction. High growths are registered in construction, but these growths are not only systematic and stable, but also do not create much additional value. It makes no sense to talk about economic developments and improvements in the social condition of society based on such increases.

Services also continue to be one of the key sectors of economic growth, where growth often comes from the financial system, gaming business, and to some extent from the information technology sector. Of these 3, IT is certainly the most important, but the role of IT in services is not large, it is barely 7-8 percent, it is almost twice as inferior to the financial system.

At the beginning of the year, this was the picture of the activity of the Armenian economy. Its structure and sectoral distribution show that it is problematic again, it continues to be based on sectors that are not promising in terms of economic developments.

HAKOB KOCHARYAN

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